REAL ESTATE OWNED

9 Months Ended

Sep. 30, 2020

REAL ESTATE OWNED

REAL ESTATE OWNED

3. REAL ESTATE OWNED

Real estate assets owned by the Company consist of income producing operating properties, properties under development, land held for future development, and held for disposition properties. As of September 30, 2020, the Company owned and consolidated 148 communities in 13 states plus the District of Columbia totaling 47,488 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of September 30, 2020 and December 31, 2019 (dollars in thousands):

	September 30,		December 31,
	2020		2019
Land	$	2,144,489	$	2,164,032
Depreciable property — held and used:
Land improvements		230,291		224,964
Building, improvements, and furniture, fixtures and equipment		10,118,451		10,102,758
Real estate intangible assets		40,570		40,570
Under development:
Land and land improvements		56,361		29,226
Building, improvements, and furniture, fixtures and equipment		141,462		40,551
Real estate held for disposition:
Land and land improvements		9,654		—
Building, improvements, and furniture, fixtures and equipment		119,742		—
Real estate owned		12,861,020		12,602,101
Accumulated depreciation		(4,512,771)		(4,131,353)
Real estate owned, net	$	8,348,249	$	8,470,748

Acquisitions

In January 2020, the Company acquired a 294 apartment home operating community located in Tampa, Florida for approximately $85.2 million. The Company increased its real estate assets owned by approximately $83.1 million and recorded approximately $2.1 million of in-place lease intangibles.

In January 2020, the Company increased its ownership interest from 49% to 100% in a 276 apartment home operating community located in Hillsboro, Oregon, for a cash purchase price of approximately $21.6 million. In connection with the acquisition, the Company repaid approximately $35.6 million of joint venture construction financing. As a result, the Company consolidated the operating community. The Company had previously accounted for its 49% ownership interest as a preferred equity investment in an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). The Company accounted for the consolidation as an asset acquisition resulting in no gain or loss upon consolidation and increased its real estate assets owned by approximately $67.8 million and recorded approximately $1.7 million of in-place lease intangibles.

In August 2020, the Company acquired a to-be-developed parcel of land located in King of Prussia, Pennsylvania for approximately $16.2 million.

Dispositions

In May 2020, the Company sold an operating community located in Bellevue, Washington with a total of 71 apartment homes for gross proceeds of $49.7 million, resulting in a gain of approximately $29.6 million. The sale was partially financed by the Company through the issuance of a promissory note totaling $4.0 million and due in February 2021. (See Note 2, Significant Accounting Policies for further discussion.) The proceeds were designated for a tax-deferred Section 1031 exchange that were used to pay a portion of the purchase price for an acquisition of an operating community in Tampa, Florida, in January 2020.

In May 2020, the Company sold an operating community located in Kirkland, Washington with a total of 196 apartment homes for gross proceeds of $92.9 million, resulting in a gain of approximately $31.7 million.

In October 2020, the Company sold an operating community located in Alexandria, Virginia with a total of 332 apartment homes for gross proceeds of $145.0 million, resulting in a gain of approximately $58.0 million. The asset is included in Real estate held for disposition on the Consolidated Balance Sheet as of September 30, 2020.

Other Activity

Predevelopment, development, and redevelopment projects and related costs are capitalized and reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. The Company capitalizes costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. These costs, excluding the direct costs of development and redevelopment and capitalized interest, for the three months ended September 30, 2020 and 2019, were $1.6 million and $1.9 million, respectively, and $10.3 million and $6.9 million for the nine months ended September 30, 2020 and 2019, respectively. Total capitalized interest was $1.8 million and $1.4 million for the three months ended September 30, 2020 and 2019, respectively, and $4.9 million and $3.8 million for the nine months ended September 30, 2020 and 2019, respectively. As each apartment home in a capital project is completed and becomes available for lease-up, the Company ceases capitalization on the related portion of the costs and depreciation commences over the estimated useful life.

We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by the future operation and disposition of those assets are less than the net book value of those assets. Our cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. The net book value of impaired assets is reduced to fair value. Our estimates of fair value represent our best estimate based upon Level 3 inputs such as industry trends and reference to market rates and transactions. The Company did not recognize any impairments in the value of its long-lived assets during the three and nine months ended September 30, 2020 and 2019.

In connection with the acquisition of certain properties, the Company agreed to pay certain of the tax liabilities of certain contributors if the Company sells one or more of the properties contributed in a taxable transaction prior to the expiration of specified periods of time following the acquisition. The Company may, however, sell, without being required to pay any tax liabilities, any of such properties in a non-taxable transaction, including, but not limited to, a tax-deferred Section 1031 exchange. 

Further, the Company has agreed to maintain certain debt that may be guaranteed by certain contributors for specified periods of time following the acquisition. The Company, however, has the ability to refinance or repay guaranteed debt or to substitute new debt if the debt and the guaranty continue to satisfy certain conditions.